Q: Given the state of things, should investors keep their distance from REITs, or step in while prices are down?

A: I have never seen REITs cheaper than they are today. The three largest REITs I would recommend are Simon Property Group [SPG], the biggest owner of malls and other retail properties in the country; Boston Properties [BXP], a large owner of Class A offices in New York, Washington, Boston and San Francisco; and AvalonBay Communities , [AVB], one of the largest owners of rental apartments in the most vibrant rental markets on the east and west coasts. All three are well capitalized, in the Standard & Poor's 500, extremely well managed, well positioned from a property standpoint, and with a lot of capital so they aren't going to be caught in a liquidity crunch. Here is an illustration: Simon is trading in the mid-40s with a dividend yield of about 8%. Its high was over 100 per share. When the economy turns, retail will start growing again. There is no reason Simon's share price couldn't get back to its old high in the next few years. In the meantime, the dividend pays you to wait. Similar metrics apply to Boston and AvalonBay.

My apartment company

5% , 27 , 3.8%

Virginia-based AvalonBay raised its payout 4.25 cents, to 89.25 cents a share. Disbursement will be made April 15 to holders of record April 1. The stock goes ex-dividend March 28. Payouts have been made every year since AvalonBay's 1994 public debut and in each of the last four years were boosted.

Housing recession will increase demand for rental apartments especially in high barrier-to-entry development markets.

Morgan Stanley upgrades Avalon Bay (AVB) from equalweight to overweight, but lowers price target to $124.50.

Upgraded by BMO Capital Markets from Underperform to Mkt Perform

Upgraded by Stifel Nicolaus from Hold to Buy

Downgraded by Goldman Sachs from Buy to Neutral

Upgraded by Wachovia from Mkt Perform to Outperform

AvalonBay Communities is among the best-managed REITs in the U.S., but its stock's lofty valuation and low dividend yield make it vulnerable to an industry slowdown. A number of S&P 500 companies now sport bigger yields than the REIT's paltry 2.3%. Apartment-building owners like AvalonBay could lose pricing power in coming years as the supply of new apartments climbs.

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